Forfeiting a Commercial Lease: How to get it right

What is forfeiture?

Forfeiture is the process by which a landlord terminates a commercial lease due to a tenant’s breach of contract. The right to forfeit is typically outlined in the lease and can be exercised under specific circumstances, such as:

• Non-payment of rent
• Breach of lease covenants (e.g., unauthorised alterations, subletting, or illegal activities)
• Insolvency or bankruptcy of the tenant

Steps to correctly forfeit a lease

1. Check the lease

The terms of the lease must be checked carefully.  It must contain the right to forfeit in the event of a breach, otherwise other procedures may be followed.

2. Serve the appropriate notice

Depending on the nature of the breach, different notices may be required:

• For non-payment of rent (and some cases, service charges): The landlord may be able to re-enter the premises without notice if the lease allows for peaceable re-entry.
• For other breaches: A Section 146 notice must be served, giving the tenant a reasonable time to rectify the breach before forfeiture proceedings commence.

3. Consider peaceful re-entry vs court proceedings

• Peaceable re-entry: If the lease permits, a landlord can physically take possession of the premises without court intervention, provided it does not involve force or unlawful means.
• Court proceedings: If re-entry is not feasible or if the tenant contests the forfeiture, the landlord should seek a court order to regain possession lawfully.

4. Be aware of the tenant claiming relief from forfeiture or wrongful forfeiture

A tenant has the right to apply for relief from forfeiture, which may allow them to regain possession of the property by remedying the breach and paying outstanding costs. Courts tend to favour granting relief, especially if a tenant can demonstrate an ability to comply with lease terms moving forward

5. Mitigate risks and seek legal advice

Forfeiture can be a complex process with potential consequences, including claims for wrongful forfeiture.  Getting it right the first time can save a lot of time, money and stress.

Please do contact our experienced property disputes team if you require legal assistance on forfeiture, and we’d be delighted to assist.